The DCIT, Circle-1, Surat V. M/s. J.K. Paper Ltd., Surat

ITA 128/AHD/2010

• Counselvise Citation: 12820514 RSA 2010
• Duration Of Justice: 2 year(s) 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 13-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Unexplained cash credit; Depreciation; Earning of tax free income; Revised return; Unabsorbed depreciation; Capital expenditure
• Section: 143(3); 234B; 115JB; 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, AHMEDABAD BEFORE SHRI A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER I.T.A. NO. 89, 1356/ AHD/2010 (ASSESSMENT YEAR 2006-07, 2007-08) M/S. J K PAPER LTD., FORT SONGADH, DISTT. SURAT VS. ADDL.CIT, RANGE 1, SURAT I.T.A.NO. 129, 1856/AHD/2010 (ASSESSMENT YEAR 2006-07 & 2007-08) ADDL.CIT, RANGE 1, VS. M/S. J.K. PAPER LTD., SURAT FORT SONGADH DISTT. SURAT I.T.A.NO. 128/AHD/2010 (ASSESSMENT YEAR 2004-05) ADDL.CIT, RANGE 1, VS. M/S. J.K. PAPER LTD., SURAT FORT SONGADH DISTT. SURAT PAN/GIR NO. : AAACT6305N (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI S N SOPARKAR, AR. ADV. MS. URVASHI SHODHAN, ADV. MR. VINEET MARWAH, ADV. RESPONDENT BY: SHRI VINOD TANWANI, SR. DR DATE OF HEARING: 14.03.2012 DATE OF PRONOUNCEMENT: 11.05.2012 O R D E R PER SHRI A. K. GARODIA, AM:- I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 2 OUT OF THESE FOUR APPEALS ARE IN QUANTUM PROCEEDI NG, BEING CROSS APPEAL FILED BY THE ASSESSEE AND THE REVENUE FOR TH E ASSESSMENT YEARS 2006-07 AND 2007-08 WHICH ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF LD. CIT(A) I, SURAT D ATE 12.11.209 OF THE ASSESSME NT YEAR 2006-07 AND DATED 31.03.2010 FOR THE ASSESSMENT YEAR 2007-08. REMAINING APPEAL IS THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEAR 2 004-05 WHICH IS REGARDING DELETION OF PENALTY BY LD. CIT(A) AS PER THE ORDER OF LD. CIT(A) I, SURAT DATED 12.11.2009 AND THIS PENALTY W AS IMPOSED BY THE A.O. U/S 271(1)(C) OF THE ACT. ALL THESE APPEALS W ERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST, WE TAKE UP THE PENALTY APPEAL FOR THE ASS ESSMENT YEAR 2004- 05. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1) ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE FOLLOWING ADDITIONS/DISALLOWABLES FOR THE PURPOSE OF WORKING OF PENALTY U/S. 271(L)(C) OF THE ACT - A) ADDITION ON ACCOUNT OF ADJUSTMENT U/S. 1 45 OF RS.1,42,34,266, B) DISALLOWANCE OF RS.78,12,884 ON ACCOUNT OF FO RESTRY EXPENSES. C) DISALLOWANCE OF EXPENSES CLAIMED AGAINST LIABILITY WRITTEN BACK OF RS.11,58,593. D) DISALLOWANCE OF RS.19,99,68,876 ON ACCOUNT OF WITHDRAWAL OF EXCESSIVE DEPRECIATION. E) DISALLOWANCE OF AN AMOUNT OF RS.34,62,416 ON ACCOUNT OF EXPENSES INCURRED FOR EARNING EXEMPT INCOME U/S. 14 A OF THE ACT. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (A) OUGHT TO HAVE UPHELD THE ORDER OF T HE ASSESSING OFFICER. 3) IT IS, THEREFORE, PRAYED THAT THE ORDER O F THE CIT(A) MAY BE SET-ASIDE AND THAT OF ASSESSING OFFICER MAY BE REST ORED TO THE ABOVE EXTENT. I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 3 2.1 THE BRIEF FACTS ARE THAT THE RETURN OF INCOME W AS FILED BY THE ASSESSEE ON 29.10.2004 DECLARING LOSS OF RS.107.72 CRORES. VARIOUS ADDITIONS WERE MADE BY THE A.O. IN THE REGULAR INCO ME AS WELL AS IN THE BOOK PROFIT. VARIOUS RELIEVES WERE ALLOWED BY LD. CIT(A) AND BY THE TRIBUNAL AND AS PER THE APPEAL EFFECT ORDER PASSED BY THE A.O. ON 15.10.2009, FOR GIVING EFFECT TO THE TRIBUNAL ORDER DATED 04.09.2009, INCOME AS PER NORMAL COMPUTATION WAS ASSESSED AT RS .28.30 CRORES AGAINST WHICH SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION FOR THE ASSESSMENT YEAR 2001-02 WAS ALLOWED AND THE FINAL I NCOME ASSESSED WAS NIL. BOOK PROFIT U/S 115JB OF THE INCOME TAX ACT , 1961 WAS ACCEPTED AS PER THE RETURN OF INCOME AT RS.18,70,08,410/-. PEN ALTY WAS IMPOSED BY THE A.O. U/S 271(1)(C) FOR VARIOUS ADDITIONS MADE I N THE NORMAL COMPUTATION OF INCOME. BEING AGGRIEVED, THE ASSESS EE CARRIED THE MATTER IN APPEAL BEFORE LD. CIT(A) REGARDING THE PENALTY I MPOSED BY THE A.O.. THE PENALTY WAS PARTLY DELETED BY LD. CIT(A) AS PER THE IMPUGNED ORDER AND NOW, THE REVENUE IS IN APPEAL FOR THE PENALTY D ELETED BY LD. CIT(A). 2.2 LD. D.R. SUPPORTED THE PENALTY ORDER WHEREAS LD . A.R. SUBMITTED THAT NOW, AS PER THE JUDGMENT OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT VS NALVA SONS INVESTMENTS LTD., 327 ITR 543 (DEL.), WHERE THE TOTAL INCOME COMPUTED UNDER REGULAR PROVI SION IS LESS THAN BOOK PROFIT AND THE ASSESSMENT IS MADE U/S 115JB, P ENALTY CANNOT BE LEVIED. HE SUBMITTED THAT IN THE PRESENT CASE ALSO , THE NORMAL INCOME ASSESSED BY THE A.O. AFTER GIVING EFFECT TO THE TRI BUNAL ORDER IS AN INCOME OF RS.28.30 CRORES AND AFTER ALLOWING SET OFF OF B/ F UNABSORBED DEPRECIATION, NET INCOME IS ASSESSED AT RS. NIL W HEREAS BOOK PROFIT HAD BEEN ASSESSED AT RS.18.70 CRORES AND THEREFORE, BOO K PROFIT U/S 115JB IS HIGHER THAN THE NORMAL AND REGULAR INCOME ASSESSED BY THE A.O. AND, THEREFORE, ASSESSMENT WAS COMPLETED U/S. 115JB AND, THEREFORE, IN THE I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 4 PRESENT CASE ALSO, NO PENALTY IS JUSTIFIED AS PER T HIS JUDGMENT OF HONBLE DELHI HIGH COURT. 2.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND THE JUDGEMENT CITED BY THE LD. A.R. WE FIND THAT THIS FACT IS UNDISPUTED THAT AS PER THE APPEAL EFFECT ORDER PASSED BY THE A.O. O N 15.10.2009, REGULAR INCOME WAS ASSESSED AT RS.28.30 CRORES BEFORE ALLOW ING SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECIATION AND AFTER ALLOWING SUCH SET OFF, REGULAR INCOME WAS ASSESSED AT RS. NIL WHEREAS THE BOOK P ROFIT WAS ASSESSED AT RS.18.70 CRORES AS DISCLOSED BY THE ASSESSEE IN THE RETURN OF INCOME. IN THE LIGHT OF THESE FACTS, NOW WE EXAMINE THE APPLIC ABILITY OF THIS JUDGEMENT OF HONBLE DELHI HIGH COURT CITED BY THE LD. A.R. BEING THE JUDGMENT RENDERED IN THE CASE OF NALVA SONS INVESTM ENTS LTD. (SUPRA). AS PER THE FACTS OF THIS CASE, ORIGINAL RETURN OF I NCOME WAS FILED BY THE ASSESSEE DECLARING LOSS OF RS.43.47 CRORES AND THER EAFTER, REVISED RETURN WAS FILED SHOWING INCOME AT RS.3,86,82,128/- UNDER THE PROVISIONS OF SECTION 115JB OF THE INCOME TAX ACT, 1961. THE ASS ESSMENT WAS COMPLETED BY THE A.O. U/S 143(3) AT A LOSS OF RS.36 .95 CRORES AS PER THE NORMAL PROVISIONS AND AT BOOK PROFIT WAS COMPUTED A T RS.40163180/- U/S 115JB OF THE INCOME TAX ACT, 1961. THIS GOES TO SH OW THAT IN THAT CASE, ADDITION WAS MADE BY THE A.O. FOR COMPUTATION OF IN COME AS PER THE NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961 AND A LSO FOR COMPUTING BOOK PROFIT U/S 115JB OF THE INCOME TAX ACT, 1961. FOR THE ADDITIONS MADE BY THE A.O., PENALTY WAS LEVIED BY HIM U/S 271 (1)(C) OF THE ACT. UNDER THESE FACTS, IT WAS HELD BY THE HONBLE DELHI HIGH COURT IN THAT CASE THAT WHEN THE INCOME COMPUTED IN ACCORDANCE WI TH NORMAL PROVISIONS IS LESS THAN THE INCOME DETERMINED BY TH E LEGAL FICTION NAMELY THE BOOK PROFIT U/S115JB OF THE INCOME TAX ACT, 196 1 AND THE INCOME OF I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 5 THE ASSESSEE IS ASSESSED U/S 115JB AND NOT UNDER TH E NORMAL PROVISIONS AND THE TAX IS PAID ON THE INCOME ASSESSED U/S 115J B OF THE INCOME TAX ACT, 1961, CONCEALMENT OF INCOME WOULD HAVE NO ROLE TO PLAY AND COULD NOT LEAD TO TAX EVASION AND, THEREFORE, PENALTY CAN NOT BE IMPOSED ON THE BASIS OF DISALLOWANCE OR ADDITION MADE UNDER THE NO RMAL PROVISIONS. HONBLE DELHI HIGH COURT HAS ALSO CONSIDERED THE JU DGEMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF GOLD COIN HEALTH & FOOD LTD. AS REPORTED IN 304 ITR 308. SINCE, THE FACTS ARE SIMI LAR IN THE PRESENT CASE, WE UPHOLD THE ORDER OF LD. CIT(A) BY RESPECTFULLY F OLLOWING THIS JUDGMENT OF HONBLE DELHI HIGH COURT CITED BY THE L D. A.R. RENDERED IN THE CASE OF NALVA SONS INVESTMENTS LTD. (SUPRA). 2.4 IN THE RESULT, THIS APPEAL OF THE REVENUE IN I. T.A.NO. 128/AHD/2010 FOR THE ASSESSMENT YEAR 2004-05 IS DISMISSED. 3. NOW, WE TAKE UP THE ASSESSEES APPEALS FOR THE A SSESSMENT YEAR 2006-07 AND 2007-08 TOGETHER BECAUSE THE ISSUES INV OLVED ARE COMMON. 3.1 THE FIRST ISSUE IN BOTH THESE APPEALS AS PER GR OUND NO.1 IN BOTH THESE YEARS IS REGARDING DISALLOWANCE CONFIRMED BY LD. CIT(A) IN RESPECT OF EARLIER YEAR EXPENSES. THE LD. A.R. DID NOT PR ESS THIS GROUND IN BOTH THESE YEARS AND ACCORDINGLY, GROUND NO.1 OF THE ASS ESSEES APPEALS IS REJECTED IN BOTH THESE YEARS AS NOT PRESSED. 3.2 THE 2 ND ISSUE INVOLVED IN BOTH THESE YEARS IS AS PER GROUN D NO.2 IN BOTH THESE YEARS AND IS REGARDING UPHOLDING OF THE DISALLOWANCE IN RESPECT OF PRINTING/RAW MATERIAL PROCUREMENT EXPENSES. THE AMOUNT INVOLVED IS RS.2.69 LACS IN ASSESSMENT YEAR 2006-07 AND RS.2.92 LACS IN ASSESSMENT YEAR 2007-08. 3.3 LD. A.R. OF THE ASSESSEE FAIRLY CONCEDED THAT T HIS ISSUE IS COVERED AGAINST THE ASSESSEE BY THE TRIBUNAL DECISION IN TH E ASSESSEES OWN CASE FOR THE EARLIER YEARS I.E. ASSESSMENT YEARS 2002-03 , 2003-04 AND 2004-05 I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 6 AND IT WAS SUBMITTED THAT A COPY OF THIS TRIBUNAL O RDER WHICH IS AVAILABLE IN THE PAPER BOOK AT PAGE A-39. ACCORDINGLY, THIS GROUND OF THE ASSESSEE IS REJECTED IN BOTH THESE YEARS BY RESPECTFULLY FOL LOWING THE TRIBUNAL ORDER IN ASSESSEES OWN CASE IN EARLIER YEARS AS CITED BY THE LD. A.R. 4. THE 3 RD ISSUE INVOLVED IN BOTH THESE APPEALS OF THE ASSESS EE IS REGARDING UPHOLDING OF THE ADDITION MADE BY THE A.O . IN RESPECT OF CLOSING STOCK VALUATION AS PER THE PROVISION OF SEC TION 145A OF THE INCOME TAX ACT, 1961. THE AMOUNT OF ADDITION MADE BY THE A.O. IN THE ASSESSMENT YEAR 2006-07 WAS RS.16,86,535/- AND THE AMOUNT INVOLVED IN ASSESSMENT YEAR 2007-08 IS RS.15,57,991/-. THIS IS SUE HAS BEEN RAISED IN BOTH THE YEARS AS PER GROUND NO.3 OF THE ASSESSEES APPEAL. 4.1 IT WAS FAIRLY CONCEDED BY THE LD. A.R. THAT THI S ISSUE IS ALSO COVERED AGAINST THE ASSESSEE BY THE SAME TRIBUNAL D ECISION IN THE ASSESSEES OWN CASE FOR EARLIER YEARS I.E. ASSESSME NT YEAR 2002-03, 2003- 04 AND 2004-05 AND OUR ATTENTION WAS DRAWN TO PAGE A-40 OF THE PAPER BOOK IN THIS REGARD. RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER IN ASSESSEES OWN CASE IN EARLIER YEARS, THIS GROUND O F THE ASSESSEE IS ALSO REJECTED IN BOTH THESE YEARS. 5. THE ISSUE NO.4 IS RAISED BY THE ASSESSEE ONLY IN ASSESSMENT YEAR 2006-07 AN THERE IS NO SUCH ISSUE IN ASSESSMENT YEA R 2007-08. THIS ISSUE WAS RAISED IN ASSESSMENT YEAR 2006-07 BY THE ASSESS EE AS PER GROUND NO.5. THIS ISSUE IS REGARDING UPHOLDING OF DISALLO WANCE OF RS.159 LACS BEING ONE TIME ADDITIONAL INTEREST PAID TO COMPENSA TE FINANCIAL INSTITUTION OR BANK TOWARDS LOW INTEREST CHARGED IN THE EARLIER YEARS. THIS DISALLOWANCE WAS MAINLY MADE ON THIS BASIS THAT IT IS IN THE NATURE OF PRIOR PERIOD EXPENSES AND THIS WAS ALSO ONE OF THE REASON ING GIVEN THAT ASSESSEE WILL DERIVE BENEFIT OF ENDURING NATURE AND THEREFOR E, IT IS A CAPITAL EXPENDITURE. I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 7 5.1 IT WAS SUBMITTED BY THE LD. A.R. THAT THIS ISSU E IS COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2005-06 IN I.T.A.NO. 4027/AHD/2008. HE FURTHE R SUBMITTED THAT THE RELEVANT PAGES OF THE PAPER BOOK IS PAGE NO.B-18 TO B-24. LD. D.R. SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 5.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDER OF AUTHOR ITIES BELOW AND THE TRIBUNAL DECISION CITED BY THE LD. A.R. WE FIND TH AT IN EARLIER YEAR ALSO I.E. IN ASSESSMENT YEAR 2005-06, THE SAME ISSUE WAS RAISED BEFORE THE TRIBUNAL AND IN THAT YEAR ALSO, THE DISALLOWANCE OF RS.2066.43 LACS WAS MADE IN RESPECT OF ONE TIME ADDITIONAL INTEREST PAI D TO COMPENSATE FINANCIAL INSTITUTIONS OR BANKS TOWARDS LOWER INTER EST CHARGED IN EARLIER YEARS AS PER STEP UP INTEREST SCHEDULE UNDER AFFORD ABLE APPROVED SCHEME. IN THAT YEAR ALSO, THE DISALLOWANCE WAS MADE ON TWO BASIS. ONE BASIS WAS THAT IT IS A PRIOR PERIOD EXPENSES AND SECOND BASIS WAS THAT IT IS A CAPITAL EXPENDITURE BECAUSE IT WILL RESULT INTO ENDURING BE NEFIT TO THE ASSESSEE. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDES, THE TRIBUNAL HAS DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE IN THA T YEAR. NO DIFFERENCE IN FACTS COULD BE POINTED OUT BY THE LD. D.R. AND HENC E, WE DO NOT FIND ANY REASON TO TAKE A CONTRARY VIEW IN THE PRESENT YEAR AND HENCE, BY RESPECTFULLY FOLLOWING THE TRIBUNAL DECISION IN ASS ESSEES OWN CASE IN ASSESSMENT YEAR 2005-06, WE HOLD THAT IN THE PRESEN T YEAR ALSO, THE DISALLOWANCE MADE BY THE A.O. AND CONFIRMED BY LD. CIT(A) IS NOT SUSTAINABLE. WE DELETE THE SAME. THIS GROUND OF T HE ASSESSEE IN ASSESSMENT YEAR 2006-07 BEING GROUND NO.5 IS ALLOWE D. 6. THE NEXT ISSUE IS RAISED BY THE ASSESSEE IN ASSE SSMENT YEAR 2006-07 ONLY AS PER GROUND NO.4 AND THE SAME IS IN RESPECT OF THE CREDIT BALANCE WRITTEN BACK OF RS.2,73,501/-. THIS GROUND WAS NOT PRESSED BY THE LD. I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 8 A.R. AND HENCE, GROUND NO.4 IN ASSESSMENT YEAR 2006 -07 IS REJECTED AS NOT PRESSED. THERE IS NO SUCH GROUND IN ASSESSMENT YEAR 2007-08. 7. THE NEXT ISSUE RAISED BY THE ASSESSEE IS ALSO RA ISED IN ASSESSMENT YEAR 2006-07 ONLY AS PER GROUND NO.7 AND THE SAME I S REGARDING CHARGING OF INTEREST U/S 234B AND 234C IN RESPECT OF MAT PAY ABLE BY THE ASSESSEE U/S 115JB OF THE INCOME TAX ACT, 1961. THIS GROUND WAS NOT PRESSED BY THE LD. A.R. AND HENCE, THE SAME IS ALSO REJECTED A S NOT PRESSED. 8. THE NEXT ISSUE IS ALSO RAISED BY THE ASSESSEE IN ASSESSMENT YEAR 2006-07 ONLY AS PER GROUND NO.6 AND THIS ISSUE IS R EGARDING IGNORING THE CLAIM OF THE ASSESSEE FOR DEDUCTION OF RS.159 LACS WHILE COMPUTING BOOK PROFIT WHICH IS PERMISSIBLE UNDER CLAUSE (I) WITH E XPLANATION (1) TO SECTION 115JB(2). 8.1 IT IS SUBMITTED BY THE LD. A.R. THAT NO BASIS H AS BEEN DISCLOSED BY THE AUTHORITIES BELOW AS TO HOW THIS AMOUNT IS NOT COVERED BY CLAUSE (I) OF EXPLANATION (1) TO SECTION 115JB(2). LD. D.R. SUPP ORTED THE ORDERS OF AUTHORITIES BELOW. 8.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. THIS ISSUE HAS BEEN DECIDED BY LD. CIT(A) AS PER PARA 13.1.3.3 ON PAGES 23-24 OF HIS ORDER AND FOR THE SAKE OF READY REFERENCE, THIS PARA OF THE ORDER OF LD. CIT(A) IS REPRODUCED BELOW: 13.1.3.3 I CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND THE OBSERVATION OF THE A.O. THE FINANCIAL RESTRUCTU RING HAS BEEN DONE WITH THE APPROVAL OF THE HON'BLE HIGH COURT AS PER WHICH THE PAYMENT OF ONE TIME ADDITIONAL INTEREST WAS TO BE D ONE FROM THE ACCUMULATED PROFITS, I.E. RESERVES. THEREFORE, THE APPELLANT HAS IN ORDER TO TAKE UNDUE BENEFIT OF THE PROVISIONS OF TH E INCOME-TAX ACT U/S.115JB HAS WRONGLY MADE THE JOURNAL ENTRIES ABOV E THE LINE IN THE PROFIT & LOSS ACCOUNT WHEREAS ACTUALLY BOTH THE SE ENTRIES SHOULD HAVE BEEN MADE BELOW THE LINE. ACCORDING TO THE APPROVAL GIVEN BY THE HON'BLE HIGH COURT, THE ENTIRE EXPENDI TURE OF I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 9 RESTRUCTURING HAS TO BE DONE FROM THE ACCUMULATED P ROFITS. THIS IS SO BECAUSE THE INTEREST EXPENDITURE IS NOT CURRENT YEAR'S EXPENDITURE BUT AN EXTRAORDINARY EXPENDITURE RELATED TO FINANCI AL RESTRUCTURING. THIS IS CLEARLY A DIRECTION FOR APPROPRIATING THE A LREADY ACCUMULATED PROFITS AND HENCE THE APPELLANT HAS WRO NGLY FIRST CREDITED THE PROFIT & LOSS ACCOUNT BY DEBITING THE GENERAL RESERVES THEREBY INCREASING THE INCOME SIDE AND LATER ON HAS DEBITED THE PROFIT & LOSS ACCOUNT BY AN EQUAL AMOUNT FOR MAKING THE PAYMENT, WHICH BROUGHT THE BOOK PROFIT BACK TO THE REAL PROFITS. HOWEVER, WHILE COMPUTING THE BOOK PROFIT U/S.H5JB T HE APPELLANT HAS REDUCED THE BOOK PROFIT BY THE AMOUNT TRANSFERR ED FROM GENERAL RESERVE AS MENTIONED IN EXPLANATION BELOW SECTION 1 153B KNOWING FULLY WELL THAT THE EXPENDITURE SIDE WILL REMAIN AN D THE INCOME SIDE WILL BE REDUCED SUBSTANTIALLY THEREBY REDUCING THE BOOK PROFIT WHICH WAS NOT THE INTENTION OF THE HON'BLE HIGH COU RT. BOTH JOURNAL ENTRIES OF TRANSFER FROM GENERAL RESERVE AN D PAYMENT OF EXPENDITURE, I.E. ONE TIME INTEREST, FOR THE FINANC IAL RESTRUCTURING SHOULD HAVE BEEN DONE FROM THE PROFIT & LOSS APPROP RIATION ACCOUNT, I.E. BELOW THE LINE. THIS ISSUE AROSE FOR THE FIRST TIME IN A.Y. 2005-06 AND THE CIT(A) HAS DECIDED THIS ISSUE AGAINST THE APPELLANT. HENCE THE ACTION OF THE A.O. IS CORRECT AND THIS GROUND OF APPEAL IS DISMISSED. 8.3 FROM THE ABOVE PARA OF THE ORDER OF LD./ CIT(A) , IT IS SEEN THAT THIS IS NOT THE OBJECTION OF LD. CIT(A) THAT CLAUSE (I) OF EXPLANATION (1) TO SECTION 115JB(2) IS NOT APPLICABLE IN THE PRESENT C ASE. HIS OBJECTION IS THIS THAT EQUAL AMOUNT WAS PAID BY THE ASSESSEE ON ACCOUNT OF ONE TIME ADDITIONAL INTEREST TO FINANCIAL INSTITUTIONS WITH THE APPROVAL OF HONBLE HIGH COURT AND SINCE THAT IS ALLOWABLE AS EXPENDITU RE, THERE IS NO EFFECT ON THE P & L ACCOUNT IN RESPECT OF THIS TRANSFER FR OM GENERAL RESERVE TO P & L ACCOUNT AND, THEREFORE, IT CANNOT BE REDUCED FR OM BOOK PROFIT. WE FEEL THAT THERE IS NO FORCE IN THIS ARGUMENT OF LD. CIT(A) BECAUSE THIS IS UNDISPUTED FACT THAT AN AMOUNT OF RS.159 LACS WAS T RANSFERRED FROM GENERAL RESERVE AND WAS CREDITED TO P & L ACCOUNT O F THE PRESENT YEAR AND IT COULD NOT BE SHOWN BY THE AUTHORITIES BELOW OR B Y LD. D.R. THAT CLAUSE I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 10 (I) OF EXPLANATION (1) TO SECTION 115JB(2) IS NOT A PPLICABLE TOWARDS THIS AMOUNT TRANSFERRED FROM GENERAL RESERVE TO P & L AC COUNT. ONLY THIS OBJECTION IS THERE THAT EQUAL AMOUNT WAS PAID BY TH E ASSESSEE IN RESPECT OF ONE TIME INTEREST PAID TO FINANCIAL INSTITUTIONS A S APPROVED BY THE HONBLE HIGH COURT. IN OUR CONSIDERED OPINION, THIS CANNOT BE A BASIS FOR NOT APPLYING THE SAID CLAUSE (I) OF EXPLANATION (1) TO SECTION 115JB AND, THEREFORE, WE REVERSE THE ORDER OF THE AUTHORITIES BELOW ON THIS ASPECT. GROUND NO.6 OF THE ASSESSEES APPEAL IN ASSESSMENT YEAR 2006-07 IS ALLOWED. 9. THE LAST ISSUE IN THESE TWO APPEALS OF THE ASSES SEE IS REGARDING DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PF OF RS .6,45,642/-. THIS ISSUE HAS BEEN RAISED BY THE ASSESSEE IN ASSESSMENT YEAR 2007-08 ONLY AS PER GROUND NO.4 AND THERE IS NO SUCH ISSUE IN ASSES SMENT YEAR 2006-07. 9.1 IT WAS SUBMITTED BY THE LD. A.R. THAT THIS ISSU E IN NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF CIT VS ALOM EXTRUSIONS LTD. 319 ITR 306 (S.C.). 9.2 LD. D.R. SUPPORTED THE ORDERS OF AUTHORITIES BE LOW. 9.3 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND THE JUDGMENT CITED BY THE LD. A.R. WE FIND THAT THIS I SSUE IS NOW SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT O F HONBLE APEX COURT CITED BY THE LD. A.R. AND HENCE, BY RESPECTFULLY FO LLOWING THE SAME, THIS ISSUE IS DECIDED IN FAVOUR OF THE ASSESSEE. GROUND NO.4 OF THE ASSESSEES APPEAL IN ASSESSMENT YEAR 2007-08 IS ALLOWED. 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. 11. NOW, WE TAKE UP THE REVENUES APPEALS FOR ASSES SMENT YEAR 2006- 07 AND 2007-08. I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 11 12. THE FIRST ISSUE RAISED BY THE REVENUE IN BOTH T HESE YEARS IS REGARDING DELETION OF DISALLOWANCE MADE BY THE A.O. IN RESPECT OF SOCIAL FORESTRY EXPENSES OF RS.58,60,628/- IN ASSESSMENT Y EAR 2006-07 AND RS.62,86,264/- IN ASSESSMENT YEAR 2007-08. THIS IS SUE WAS RAISED BY THE REVENUE IN BOTH THESE YEARS AS PER GROUND NO.1(A). 12.1 LD. D.R. OF THE REVENUE SUPPORTED THE ASSESSME NT ORDER AND THE LD. A.R. OF THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT (A). HE ALSO SUBMITTED THAT THIS IS CONNECTED WITH GROUND NO.3 I N ASSESSEES APPEAL FOR BOTH THE YEARS AND HE FURTHER SUBMITTED THAT TH IS ISSUE WAS DECIDED BY LD. CIT(A) BY FOLLOWING THE TRIBUNAL ORDER IN ASSES SEES OWN CASE DATED 04.09.2009 FOR THE ASSESSMENT YEARS 2002-03, 2003-0 4 AND 2004-05. 12.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERU SED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND THE TRIBUNAL DECISION CITED BY THE LD. A.R. WE FIND TH AT THE DECISION OF LD. CIT(A) IS BY FOLLOWING TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002-03, 2003-04 & 2004-05 AND THE LD. D.R. COULD NOT SHOW US AS TO HOW THIS TRIBUNAL DECISION IS NOT APP LICABLE IN THE PRESENT YEAR BY POINTING OUT ANY DIFFERENCE IN FACTS AND HE NCE, UNDER THESE FACTS, WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. ACCORDINGLY, GROUND NO.1 (A) OF THE REVENUE S APPEAL IS REJECTED IN BOTH THESE YEARS. 13. THE 2 ND ISSUE RAISED BY THE REVENUE IN BOTH THESE YEARS IS REGARDING DELETION OF ADDITION MADE BY A.O. IN RESPECT OF DIF FERENCE IN VALUE OF STOCK AS PER STOCK STATEMENT SHOWN TO THE BANK AND AS PER THE BOOKS OF ACCOUNT. THIS ISSUE HAS BEEN RAISED BY THE REVENUE IN BOTH THE YEARS AS PER GROUND NO.1(B) AND THE AMOUNT INVOLVED IS RS.9, 50,059/- IN ASSESSMENT YEAR 2006-07 AND RS.11,41,230/- IN ASSES SMENT YEAR 2007-08. I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 12 13.1 LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHEREA S THE LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). HE FURTHER SUBM ITTED THAT LD. CIT(A) HAS GIVEN HIS DECISION BY FOLLOWING THE TRIBUNAL O RDER DATED 04.09.2009 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004 -05 AND HE HAS RESORTED BACK THE MATTER TO THE FILE OF THE A.O. FO R A FRESH DECISION AS PER THE DIRECTION OF THE TRIBUNAL IN ASSESSMENT YEAR 20 04-05. 13.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERU SED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. W FIND THAT THE LD. CIT(A) HAS RESTORED BACK THE MATTER TO THE FILE OF THE A.O. FOR A FRESH DECISION ON THE BASIS OF THE TRIBUNAL DECIS ION IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2004-05 DATED 04.09.20 09. LD. D.R. COULD NOT POINT OUT ANY DIFFERENCE IN THE FACTS IN THE PR ESENT TWO YEARS AND HENCE, WE DO NOT FIND ANY REASON TO TAKE A CONTRARY VIEW IN THE PRESENT TWO YEARS AND HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE IN BOTH THESE YEARS. ACCORDINGLY, GROUN D NO.1(B) OF THE REVENUES APPEAL IS REJECTED IN BOTH THESE YEARS. 14. THE 3 RD ISSUE RAISED IS ONLY IN ASSESSMENT YEAR 2006-07, T HE SAME HAS BEEN RAISED BY GROUND NO.1(C) IN THIS YEAR WHIC H IS REGARDING DELETION OF RS.2,64,321/- BY LD. CIT(A) IN RESPECT OF LIABIL ITY/PROVISION WRITTEN BACK ON THE BASIS THAT SECTION 41(1) IS NOT APPLICA BLE IN VIEW OF BIFRS ORDER DATED 13.05.1992. 14.1 LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHEREA S, LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). HE FURTHER SUBM ITTED THAT WHILE DECIDING THIS ISSUE AS PER PARA 8.1, LD. CIT(A) HAS FOLLOWED THE TRIBUNAL ORDER IN ASSESSEES OWN CASE DATED 04.09.2009 FOR T HE ASSESSMENT YEAR 2002-03, 2003-04 & 2004-05. 14.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERU SED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 13 THAT LD. CIT(A) HAS FOLLOWED THE TRIBUNALS ORDER IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2002-03, 2003-04 & 2004-05 AND THE LD. D.R. COULD NOT POINT OUT ANY DIFFERENCE IN FACTS IN THE PRESENT YEAR, AND THEREFORE, THERE IS NO JUSTIFICATION OF TAKING A CO NTRARY VIEW IN THE PRESENT YEAR. ACCORDINGLY, GROUND NO.1(C) OF THE REVENUES APPEAL FOR THE ASSESSMENT YEAR 2006-07 IS ALSO REJECTED IN BOTH TH E YEARS. 15. THE NEXT ISSUE RAISED BY THE REVENUE IN BOTH TH ESE YEARS IS THE DELETION OF ADDITION MADE BY THE A.O. IN RESPECT O F UNEXPLAINED CREDIT OF RS.3,42,100/- IN ASSESSMENT YEAR 2006-07 AND RS.4,0 1,500/- IN ASSESSMENT YEAR 2007-08. THIS ISSUE IS RAISED BY T HE REVENUE IN BOTH THE YEARS AS PER GROUND NO.1(D) IN ASSESSMENT YEAR 2006 -07 AND GROUND NO.1(C) IN ASSESSMENT YEAR 2007-08. 15.1 LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHEREA S LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). HE ALSO SUBMITT ED THAT LD. CIT(A) HAS DECIDED THIS ISSUE BY FOLLOWING THE JUDGMENT OF HON BLE GUJARAT HIGH COURT RENDERED IN THE CASE OF AMBICA MILLS LTD. AS REPORTED IN 54 ITR 167 AND AFTER DULY CONSIDERING THE JUDGMENT OF HON BLE APEX COURT RENDERED IN THE CASE OF TV SUNDARAM AYENGER & SONS LTD. AS REPORTED IN 222 ITR 344 (S.C.). 15.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERU SED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORI TIES BELOW. WE FIND THAT THIS IS AN ADMITTED FACT IN BOTH THESE YEARS T HAT IN THE BOOKS OF THE ASSESSEE, THE AMOUNT IN QUESTION IS SHOWN AS LIABIL ITY AND IT WAS NOT WRITTEN BACK BY THE ASSESSEE BY WAY OF CREDIT TO TH E P & L ACCOUNT. IN THE LIGHT OF THESE FACTS, WHEN WE EXAMINE THE PROVISION S OF SECTION 41(1) OF THE INCOME TAX ACT, 1961, WE FIND THAT AS PER EXPLA NATION (1) INSERTED IN SECTION 41(1) BY THE FINANCE (NO.2) ACT 1996 W.E.F. 01.04.1997, IF THE ASSESSEE HAS WRITTEN BACK THE LIABILITY THEN IT WIL L AMOUNT TO REMISSION OR I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 14 CESSATION OF LIABILITY FOR THE PURPOSE OF INVOKING SECTION 41(1). AS PER THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF SUGAULI SUGAR WORKS AS REPORTED IN 236 ITR 518 (S.C.) AND I N THE CASE OF KESARIA TEA CO. LTD. REPORTED IN 254 ITR 434 (S.C.), EVEN A UNILATERAL ENTRY PASSED BY THE ASSESSEE BY WRITING BACK THE LIABILIT Y WILL NOT AMOUNT TO CESSATION OF LIABILITY. HOWEVER, AFTER THE AMENDME NT OF SECTION 41(1) BY WAY OF INSERTION OF EXPLANATION (1), TO THIS EXTENT , THESE TWO JUDGEMENTS OF HONBLE APEX COURT WILL NOT BE APPLICABLE WHERE THE ASSESSEE HAS WRITTEN BACK THE LIABILITY BUT WHERE ASSESSEE HAS N OT WRITTEN BACK THE LIABILITY IN THE BOOKS, SECTION 41(1) CANNOT BE INV OKED AS PER THESE TWO JUDGMENTS OF HONBLE APEX COURT EVEN AFTER THE INSE RTION OF EXPLANATION (1) IN SECTION 41(1). THESE TWO JUDGEMENTS OF HON BLE APEX COURT WILL NOT BE APPLICABLE WHERE THE ASSESSEE HAS WRITTEN BA CK THE LIABILITY BUT WHERE ASSESSEE HAS NOT WRITTEN BACK THE LIABILITY I N THE BOOKS, SECTION 41(1) CANNOT BE INVOKED AS PER THESE TWO JUDGMENTS OF HONBLE APEX COURT EVEN AFTER THE INSERTION OF EXPLANATION (1) T O SECTION 41(1) OF THE ACT. SINCE IN THE PRESENT CASE, ASSESSEE HAS NOT WR ITTEN BACK THE LIABILITY IN QUESTION, PROVISIONS OF SECTION 41(1) CANNOT BE INVOKED AND HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. GROUND NO.1(D) OF THE ASSESSMENT YEAR 2006-07 AND GROUND N O.1(C) FOR ASSESSMENT YEAR 2007-08 ARE REJECTED. 16. THE NEXT ISSUE IS REGARDING THE DELETION OF ADD ITION MADE BY THE A.O. OF RS.12.47 LACS IN ASSESSMENT YEAR 2006-07 IN RESPECT OF EXCHANGE FLUCTUATION. THIS ISSUE HAS BEEN RAISED BY THE REV ENUE BY WAY OF GROUND NO.1(E) IN ASSESSMENT YEAR 2006-07 ONLY AND THERE I S NO SUCH ISSUE IN ASSESSMENT YEAR 2007-08. 16.1 LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHEREA S THE LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). HE FURTHER SUBM ITTED THAT LD. CIT(A) I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 15 HAS DECIDED THIS ISSUE BY FOLLOWING THE TRIBUNAL DE CISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002-03 AS PER THE TRIBUNAL ORDER DATED 04.09.2009. 16.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERU SED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT LD. CIT(A) HAS FOLLOWED THE TRIBUNAL ORDER IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002-03 AND NO DIFFERENCE IN FA CTS COULD BE POINTED OUT BY THE LD. D.R.. THIS IS NOT THE CASE OF THE R EVENUE THAT THIS INCREASE IN FOREIGN EXCHANGE LIABILITY IS WITH REGARD TO FIX ED ASSETS. IT IS NOTED BY LD. CIT(A) IN PARA 11.1 OF HIS ORDER THAT LIABILITY FASTENED ON THE ASSESSEE IS ON ACCOUNT OF EXCHANGE FLUCTUATION ON THE OUTSTA NDING BILLS FOR IMPORT OF MATERIAL. NOW, THIS ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGMENT OF HONBLE APEX COURT AS RENDERED IN THE C ASE OF WOODWARD GOVERNOR (INDIA) LTD. AS REPORTED IN 312 ITR 254 (S .C.). IN VIEW OF THE ABOVE DISCUSSION, WE DO NOT FIND ANY REASON TO INTE RFERE IN THE ORDER OF LD. CIT(A) ON THIS ISSUE. ACCORDINGLY, GROUND NO.1 (E) OF THE REVENUES APPEAL FOR THE ASSESSMENT YEAR 2006-07 IS ALSO REJE CTED. 17. THE NEXT ISSUE RAISED BY THE REVENUE IN BOTH TH ESE YEARS IS REGARDING DELETION OF DISALLOWANCE OF RAW MATERIAL PROCUREMENT EXPENDITURE DEBITED TO P & L ACCOUNT FOR THE PURPOS E OF COMPUTING BOOK PROFIT/MAT U/S 115JB AND THE AMOUNTS INVOLVED IN AS SESSMENT YEAR 2006-07 IS RS.1,23,29,870/- AND IN ASSESSMENT YEAR 2007-08, RS.80,45,449/-. THIS ISSUE HAS BEEN RAISED BY THE REVENUE AS PER GROUND N.1(F) IN ASSESSMENT YEAR 2006-07 AND GROUND NO.1(D ) IN ASSESSMENT YEAR 2007-08. 17.1 LD. D.R. SUPPORTED THE ASSESSMENT ORDER AND TH E LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). HE FURTHER SUBM ITTED THAT LD. CIT(A) HAS DECIDED THIS ISSUE BY FOLLOWING VARIOUS TRIBUNA L ORDERS IN EARLIER YEARS I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 16 IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 200 2-03, 2004-05 AND 2005-06. 17.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERU SED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT IT IS NOTED BY LD. CIT(A) IN PARA 13.1.2 OF HI S ORDER FOR THE ASSESSMENT YEAR 2006-07 THAT A.O. HAS STATED IN THE ASSESSMENT ORDER THAT THIS ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY FOLLOWING THE DECISION IN THE EARLIER ASSESSMENT YEAR. HE HAS ALSO NOTED THAT IN ASSESSMENT YEAR 2002-03, 2003-04 AND 2004-05, THE TRIBUNAL HAS DECI DED THIS ISSUE IN FAVOUR OF THE ASSESSEE AS PER THE TRIBUNAL ORDER DA TED 04.09.2009. LD. D.R. COULD NOT POINT OUT ANY DIFFERENCE IN THE FACT S IN THE PRESENT YEAR AND, THEREFORE, THERE IS NO REASON TO TAKE A CONTRA RY VIEW IN THE PRESENT TWO YEARS AND, THEREFORE, WE DECLINE TO INTERFERE I N THE ORDER OF LD. CIT(A) ON THIS ISSUE IN THESE TWO YEARS. ACCORDING LY, GROUND NO.1(F) IN ASSESSMENT YEAR 2006-07 AND GROUND NO.1(D) IN ASSES SMENT YEAR 2007-08 IS REJECTED. 18. THERE IS NO MORE ISSUE IN ASSESSMENT YEAR 2007- 08 BUT THERE IS ONE MORE ISSUE IN ASSESSMENT YEAR 2006-07 RAISED BY THE REVENUE AS PER GROUND NO.1(G) IN THIS YEAR. THIS ISSUE IS REGARDI NG ALLOWING OF REDUCTION OF THE AMOUNT TRANSFERRED FROM EQUITY PREMIUM (RES ERVE AND SURPLUS) FOR THE PURPOSE OF COMPUTING BOOK PROFIT/MAT U/S 115JB. THE AMOUNT INVOLVED IS RS.1,92,66,463/-. 18.1 LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHEREA S THE LD. A.R. SUPPORTED THE ORDER OF LD. CIT(A). HE FURTHER SUBM ITTED THAT THIS ISSUE HAS BEEN DECIDED BY LD. CIT(A) AS PER PARA 13.1.4.2 OF HIS ORDER. HE ALSO SUBMITTED THAT HIS ISSUE IS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL ORDER IN THE CASE OF ASSOCIATED CEMENT CO. LTD. VS ADDL. CIT IN I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 17 I.T.A.NO. 6289/MUM/2003 DATED 09.03.2011. HE SUBMI TTED A COPY OF THIS TRIBUNAL DECISION. 18.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERU SED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW AND THE TRIBUNAL DECISION CITED BY LD. A.R. RENDERED IN THE CASE OF ASSOCIATED CEMENT CO. LTD. (SUPRA). IN THAT CASE, IT IS NOTED BY THE TRIBUNAL THAT AN AMOUNT WAS WITHDRAWN BY THE ASSESSEE FROM RESERVE & SURPLUS OF RS.146.60 LACS AND THE SAME WAS TO MEET THE EXPENSE S INCURRED BY THE ASSESSEE IN RESPECT OF ISSUE OF SHARES, RIGHT ISSUE OF SHARES, PRO RATA PREMIUM ON REDEMPTION OF DEBENTURES AND DEBENTURE I SSUE EXPENSES. THE AMOUNT OF WITHDRAWAL FROM RESERVE ACCOUNT WAS NOT D IRECTLY CREDITED TO P & L ACCOUNT BUT THE SAME WAS REDUCED FROM THOSE EXP ENDITURE IN THE INNER COLUMN OF P & L ACCOUNT AND ONLY NET AMOUNT O N ACCOUNT OF THOSE EXPENSES WERE DEBITED TO P & L ACCOUNT. UNDER THESE FACTS, THE CLAIM OF THE ASSESSEE FOR ALLOWING REDUCTION FROM BOOK PROFI T FOR WITHDRAWAL FROM RESERVE WAS REJECTED BY THE AUTHORITIES BELOW ON TH IS BASIS THAT THE SAME WAS NOT CREDITED TO THE P & L ACCOUNT. EVEN UNDER THESE FACTS, THIS ISSUE WAS DECIDED BY THE TRIBUNAL IN THAT CASE IN FAVOUR OF THE ASSESSEE AS PER PARA 79 OF THE TRIBUNAL ORDER WHICH IS REPRODUCED B ELOW FOR THE SAKE OF READY REFERENCE: 79. WE FIND THAT IN TERMS OF THE PROVISIONS OF SECTION 115JA(2)(I), TO ARRIVE AT THE BOOK PROFIT, THE AM OUNT OF PROFIT AS PER PROFIT AND LOSS ACCOUNT IS REQUIRED TO BE RED UCED, INTER ALIA, BY THE 'AMOUNT WITHDRAWN FROM ANY RESERVES OR PROVISIO NS IF ANY SUCH AMOUNT IS CREDITED TO THE PROFIT AND LOSS ACCOUNT' AND IT IS UNDER THIS CLAUSE THAT THE ASSESSEE HAS MADE THE CLAIM FO R ADJUSTMENT. WE HAVE ALSO NOTED THAT, AS EVIDENT FORM SCHEDULE 2 TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE COMPANY [AT PAGE 4 OF THE COMPILATION FILED BEFORE US], THE EXPENSES INCURRED BY THE ASSESSEE COMPANY ARE OFFSET AGAINST' SHARE PREMIUM ACCOUNT' IN THE INNER COLUMN OF THE PROFIT AND LOSS ACCOUNT, AND THE NET DEBIT OF THE I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 18 EXPENSES IS NET OF THIS FIGURE OF TRANSFER FROM SHA RE PREMIUM ACCOUNT. ON THESE FACTS, THE STAND OF THE REVENUE IS THAT SINCE AMOUNT WITHDRAWN FROM RESERVES HAS NOT BEEN SHOWN T O THE CREDIT OF THE PROFIT AND LOSS ACCOUNT, THE ADJUSTMENT CANN OT BE ALLOWED. WE, HOWEVER, SEE NO LEGALLY SUSTAINABLE MERITS IN T HE HYPER TECHNICAL OBJECTION TAKEN BY THE REVENUE. AN AMOUNT BEING CREDITED TO THE PROFIT AND LOSS ACCOUNT IS NOT NECE SSARILY THE SAME THING AS AMOUNT BEING SHOWN IN THE CREDIT SIDE OF T HE PROFIT AND LOSS ACCOUNT ON STANDALONE BASIS. WHETHER A CREDIT ENTRY IS REDUCED FROM GROSS DEBITS TO EXPENSES AND THUS NET DEBIT FI GURE IS SHOWN, OR WHETHER BOTH THE CREDITS AND DEBITS ARE SHOWN AT GR OSS FIGURES HAS THE SAME ACCOUNTING EFFECT AND BOTH THE SITUATIONS CREDIT ENTRY CONTINUES TO HAVE THE SAME CHARACTER. IN ANY EVENT , MANNER IN WHICH ADJUSTMENT IS SHOWN IN THE PROFIT AND LOSS AC COUNT IS NOT DECISIVE OF THE NATURE OF TRANSACTION, NOR IS THE P ROFIT AND LOSS ACCOUNT PUBLISHED BY THE ASSESSEE REFLECTS ALL TH E DEBITS AND CREDITS IN THE SAME FORM IN WHICH THESE ARE REFLECT ED IN THE PROFIT AND LOSS ACCOUNT SHOWN THE BOOKS OF ACCOUNTS. THE V ERTICAL PROFIT AND LOSS ACCOUNT IS BASED ON THE ENTRIES MADE IN TH E PROFIT AND LOSS ACCOUNT AS TRADITIONALLY PREPARED IN THE BOOKS OF A CCOUNTS AND IS NOT A COPY OF THE SAME, THEREFORE, MERELY BECAUSE S EPARATE CREDIT ENTRY, AS AN INCOME, IS NOT SHOWN IN THE PROFIT AND LOSS ACCOUNT, IT CAN NOT BE SAID THAT THERE HAS BEEN NO CREDIT TO T HE PROFIT AND LOSS ACCOUNT. IT IS NOT SHOWN SEPARATELY AS AN INCOME H EAD ON THE CREDIT SIDE, BIT THAT DOES NOT MEAN THAT THE AMOUNT HAS NO T BEEN CREDITED TO THE PROFIT AND LOSS ACCOUNT. IN SUBSTANCE, ON TH E FACTS OF THIS CASE, THERE WAS A CREDIT TO THE PROFIT AND LOSS ACC OUNT ON ACCOUNT OF THE TRANSFER FROM RESERVES AND THIS HAS BEEN OFFSET AGAINST THE EXPENSES INCURRED BY THE ASSESSEE. LEARNED CIT(A) W AS, THEREFORE, QUITE JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE IMPUGNED ADJUSTMENT. WE UPHOLD HIS ACTION AND DECLI NE TO INTERFERE IN THE MATTER. 18.3 IN THE PRESENT CASE, THE FACTS ARE STILL BETTE R BECAUSE IN THE PRESENT CASE, THE RESERVE WAS DIRECTLY CREDITED TO P & L AC COUNT INSTEAD OF REDUCING FORM EXPENSES INCURRED. THEREFORE, IN THE LIGHT OF THIS TRIBUNAL DECISION CITED BY THE LD. A.R., WE ARE OF THE OPINI ON THAT THE AMOUNT OF MONEY TRANSFERRED FROM EQUITY PREMIUM (RESERVE AND SURPLUS) HAS TO BE ALLOWED TO BE REDUCED FROM BOOK PROFIT AS PER CLAUS E (I) OF EXPLANATION I.T.A.NO.89,1356 /AHD/2010 I.T.A.NO. 129,1856,128/AHD/2010 19 (1) TO SECTION 115JB(2) OF THE ACT. WE, THEREFORE ALLOW THIS CLAIM OF THE ASSESSEE FOR REDUCTION FROM BOOK PROFIT. ACCORDING LY, GROUND NO.1(D) OF THE REVENUES APPEAL IN ASSESSMENT YEAR 2006-07 IS ALSO REJECTED. 19. IN THE RESULT, BOTH THESE APPEALS OF THE REVENU E ARE DISMISSED. 20. IN THE COMBINED RESULT, ALL THE THREE APPEALS O F THE REVENUE ARE DISMISSED AND BOTH THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. 21. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED HEREINABOVE. SD./- D./- (KUL BHARAT) (A. K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD 1. DATE OF DICTATION26/4 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER30/4 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 11/5 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.11/5 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 11 /5/12 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK .. 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER . 9. DATE OF DESPATCH OF THE ORDER. .